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Is Gold Tarnished By Taxes?

(posted: December 4th, 2017)

Gold remains a popular hedge for sophisticated investors.

Watch out for a unique tax whammy.

Unlike most other investments, gold is subject to a special long-term capital gains rate that is significantly higher than the usual rate.

In fact, depending on your situation, a long-term capital gain resulting from the sale of gold could trigger a tax rate almost double the rate you're paying on your other long-term gains.

The usual maximum federal income tax rate on long-term gain for sales of securities and other assets you've held longer than one year is 15%. If you're in the ordinary top income tax bracket, however, the maximum tax rate is increased to 20%.

However, physical metals such as gold and silver, along with artwork, antiques, vintage wines and rare coins and stamps, are classified by the IRS as "collectibles." If you hold a collectible for a year or less before selling it, the short-term capital gain is taxed at ordinary income rates.

Conversely, if you sell a collectible held longer than a year, the gain is treated as a long-term capital gain subject to a special maximum rate of 28% for collectibles.

The form of physical metal doesn't matter. Gains on gold coins, bars, gram gold accounts and gold certificates are all taxed at the 28% rate. Even exchange-traded funds (EFTs) owning physical metals are taxable as collectibles.

Note: On the other hand, if you sell gold-mining stocks or shares of a mutual fund investing in gold, the gain is taxed under the regular rules for sale of securities.

In addition, other special rules govern the tax treatment of gold futures. A blended tax rate (60% long term; 40% short term) applies as if the futures were sold at the end of the tax year. Call us for more details.

If handled properly, problems may be avoided by acquiring gold investments through a tax-deferred retirement account.

Please Contact Us to learn more.


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